ACA 'Fix' Won't Cause Breakdown for Insurers

Thu, 14 Nov 2013

Allowing certain minimal-coverage health-insurance plans to stay in effect for one more year isn't a gamechanger for the managed-care organizations' prospects under the Affordable Care Act, says Morningstar's Vishnu Lekraj.

President Obama Thursday announced some changes to the Affordable Care Act and some of the plans that will now be allowed as part of the ACA.

Here to offer the details on those changes and how they might affect the managed-care organizations is Vishnu Lekraj. He covers these companies for Morningstar.

Thanks for joining me, Vishnu.

Vishnu Lekraj: Jason, thanks for having me.

Stipp: Obama did announce some changes to specific plans that had been affected by the rollout of the ACA. Can you walk us through what those changes are and what the new exception is?

Lekraj: There are a lot of moving parts with Obamacare, and this just adds more complexity into it. But basically what it boils down to is that there are some plans for individuals that weren't receiving health care either through an employer or other means--they bought the insurance by themselves on the market. They bought these plans, and these plans are lower-cost plans, and the benefits of these plans provided do not fit or meet the minimum benefits set out by the Affordable Care Act. And these plans were therefore canceled this year in anticipation of there being a vibrant and liquid public-exchange market for these folks to enter once their plans were canceled. That hasn't happened, and there's been a lot of blow-back because of it.

Stipp: They'll be able to hold on to these plans, [which] were going to be canceled before, but they won't be able to hold on to them forever necessarily?

Lekraj: No. It's a one-year delay for current plans in place. So the insurance companies can offer these plans to members who have these plans currently. They won't cancel them. But these members will probably have one year to determine what they want to do or how they can obtain health-care insurance--either through the exchanges or try to get it through their employer. It's just going to buy them one year of time.

Basically a lot … of political pressure was on the [Obama] administration and they had to acquiesce.

Stipp: If I don't have one of these plans right now, anything about this change where I could get into one, or is it just if I already hold one?

Lekraj: No. No new policies sold with these benefits below minimum benefits [as mandated by the ACA].

Stipp: The other thing, of course, that's important, the lynchpin of the Affordable Care Act, is this individual mandate. Has anything about the individual mandate--which means I need to buy insurance if I don't have it or I'm not covered--has anything with that changed?

Lekraj: No. As you said, that is the lynchpin, that's the heart of the ACA, and that is still in place. All that's happened is that the folks that have these minimal, bare-bones plans will not be penalized this year, but they probably will be next year if they don't have plans that meet standards.

Stipp: I think this is an important point you alluded to earlier. This set of people who are buying insurance on their own, who have these minimal plans, isn't a huge group of people. So I think it's important to get some perspective on what percentage of the market is composed of these plans.

Lekraj: Low single-digits. If you take a look at the whole health-care insurance market, it's a very, very small minority, because the individual market is very small to begin with, and these are a very small portion of that smaller portion.

Stipp: So given that it's a smaller portion, I'm assuming that this change with this one-year time horizon probably isn't affecting your thesis for these companies or your fair value estimates for these companies.

Lekraj: Not at all. If you look at it from a stock perspective, the stocks have been flat since the news this morning, and I don't expect there to be any movements positive or negatively for these stocks in any major way. If you look at their books, the individual plans they have on their books, is a very, very small percentage of what they to do as far as operations or revenue and profits. And the major nationwide insurers, the managed-care firms that we cover here at Morningstar, probably will not be affected as much. But you may see some effect on the regional, smaller insurance carriers. They may feel some of the brunt or some of the pain.

Stipp: If this, broadly speaking, isn't necessarily a big change for the companies or their prospects, what sorts of things would cause you to rethink your thesis? It looks like certainly the ACA is under a lot of pressure right now. People are proposing legislation--of course, we have no idea what might or might not pass. But what kind of change, if it was proposed or if it got enacted to the ACA, would cause you to have to rethink the prospects for the managed-care organizations?

Lekraj: When you take a look at Obamacare, a lot of the talk and a lot of the speculation has been negative for most of the insurers, and there are some punitive measures in the ACA, obviously, such as capped profitability and higher taxes and things of that nature.

But what was a silver lining for the ACA, for the insurers, was the public exchanges, because they would bring in more membership, more revenue potentially, and more profitability. If that's somehow delayed--if you have an individual mandate delay or if that's just wiped out--the ACA falls apart, public exchanges go by the wayside, and the revenue/profitability opportunity will not be there for the insurance companies, but they still would have to deal with the capped profitability and the higher taxes. So, actually it would be probably a net negative if these exchanges go away.

Stipp: All right, Vishnu, we'll count on you to keep an eye on the whole situation. Thanks for joining me today.

After setbacks in the Affordable Care Act's rollout are resolved, we think one 4-star managed care firm is particularly well-positioned to take advantage of the public exchanges over the longer term, says Morningstar's VishnuLekraj .

Women typically have fewer years in the workforce and live longer than men, so it's critical for them to be educated about saving for retirement as well as family finances, says TIAA-CREF's Sheila Gugliuzza.

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